Abstract
This article aims at explaining China’s vulnerability to WTO raw materials disputes. After considering the peculiar features of China’s regime of mineral export restraints (namely, its pervasiveness and the magnitude of its economic effects due to China’s dominant position in the international markets), it focuses on the scope and reach of China’s WTO obligations on the export side, as interpreted in the two recent cases China – Raw Materials and China – Rare Earths. It discusses their implications with respect to China’s policy space to maintain export restrictions for sustainable economic development needs provides some general conclusions on the likelihood of new WTO disputes on (mineral) export restraints involving China.
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Notes
- 1.
Request for Consultations by The United States, China – Export Duties on Certain Raw Materials, G/L/1147, WT/DS508/1, 14 July 2016, later supplemented by Request for Consultations by The United States, Addendum, China – Export Duties On Certain Raw Materials, G/L/1147/Add.1, WT/DS508/1/Add.1, 25 July 2016. Request for consultations by the European Union, China – Duties and other Measures concerning the Exportation of Certain Raw Materials, G/L/1148, WT/DS509/1, 25 July 2016, later supplemented by Request for consultations by the European Union, Addendum, China – Duties and other Measures concerning the Exportation of Certain Raw Materials, G/L/1148/Add.1, WT/DS509/1/Add.1, 23 August 2016.
- 2.
Dispute Settlement Body—Minutes of meeting held in the Centre William Rappard on 23 November 2016, WT/DSB/M/389, 23 January 2017, pp. 6–7.
- 3.
The third raw materials dispute will be henceforth referred to with its official short title: China – Raw Materials II.
- 4.
See Appellate Body Reports, China – Measures Related to the Exportation of Various Raw Materials, WT/DS394/AB/R, WT/DS395/AB/R, WT/DS398/AB/R, adopted 22 February 2012, DSR 2012:VII (hereinafter Appellate Body Reports, China – Raw Materials), p. 3295.
- 5.
See Appellate Body Reports, China – Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum, WT/DS431/AB/R, WT/DS432/AB/R, WT/DS433/AB/R, adopted 7 August 2014, DSR 2014:IV (hereinafter Appellate Body Reports, China – Rare Earths), p. 1127.
- 6.
As it is known, export restrictions depress the price of raw materials in the imposing country. This may lead to a reduction of domestic production, which in turn contributes mitigating the negative environmental externalities linked to extractive activities by slowing the pace of extraction, and, consequently, the rate of depletion of finite resources. It may however also boost the domestic downstream industries that avail themselves of the cheaper raw materials to the detriment of foreign competitors. For a thorough discussion on this duality, see Wu and Salzman (2014), pp. 426–430.
- 7.
See Sect. 3.
- 8.
As one of the largest exporter of critical minerals and metals, China can affect world supply and drive up world prices through the use of export barriers, in addition to artificially lowering domestic prices. See Sect. 2.3.
- 9.
As it is known, GATT Article XX(b) and (g) justify, respectively, measures necessary to protect human, animal and plant life or health, and measures related to the conservation of exhaustible natural resources. Pursuant to the introductory paragraph of Article XX, any such measure cannot nevertheless be “applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade.” For a detailed analysis of China’s defensive arguments, see for all Espa (2015), pp. 194–208.
- 10.
For a detailed explanation of how the so-called likeness of success argument conditions the choice of disputes, see De Bièvre et al. (2017), pp. 411–425.
- 11.
For a detailed description of the magnitude and the distinguishing features of the current wave of proliferating export restrictions on primary commodities, more generally, and on mineral resources, more specifically, see Espa (2015), pp. 8–34.
- 12.
The Regulations on Import and Export Tariffs came into force on 1 January 2004. See Trade Policy Review Body, Report by the Secretariat, WT/TPR/S/300/Rev.1, 27 May 2014, p. 79.
- 13.
Trade Policy Review Body, Report by the Secretariat, WT/TPR/S/264/Rev.1, 20 July 2012, p. 58; Trade Policy Review Body, Report by the Secretariat, WT/TPR/S/300/Rev.1, 7 October 2014, p. 80; Trade Policy Review Body, Report by the Secretariat, WT/TPR/S/342, 15 June 2016, p. 73.
- 14.
Trade Policy Review Body, Report by the Secretariat, WT/TPR/S/342, 15 June 2016, p. 73.
- 15.
Trade Policy Review Body, Report by the Secretariat, WT/TPR/S/342, 15 June 2016, p. 73.
- 16.
Interim duty rates may also be flanked by “special” duty rates which are mainly seasonal and substantially higher than interim duty rates. For instance, in 2013, thirteen HS 8-digit tariff lines were subject to a 75% special duty rate. Interim duty rates are revised from time to time, but are normally in place for many years and sometimes even decades. Trade Policy Review Body, Report by the Secretariat, WT/TPR/S/199/Rev.1, 12 August 2008, p. 74.
- 17.
Trade Policy Review Body, Report by the Secretariat, WT/TPR/S/342, 15 June 2016, p. 73.
- 18.
See Espa (2015), p. 83.
- 19.
For a thorough account of the functioning of China’s export quota regime, see Panel Reports, China – Measures Related to the Exportation of Various Raw Materials, WT/DS394/R, WT/DS395/R, WT/DS398/R, adopted 5 July 2011 (hereinafter Panel Reports, China – Raw Materials), paras. 7.172–7.201.
- 20.
Trade Policy Review Body, Report by the Secretariat, WT/TPR/S/300/Rev.1, 27 May 2014, p. 81.
- 21.
In the former case, MOFCOM determines the total ceiling for quotas in light of a number of objectives, including the safety of the national economy, the protection of limited domestic resources, the development of national industries and the state of demand on the international and the domestic markets. MOFCOM also allocates the quotas directly or through local administrative authorities based on criteria that include export performance, the utilization ratio of the export quota, the business management/operation capacity of the applicant and its production scale. See China’s Export Quota Administration Measures, Article 10 and Article 19, cited in Panel Reports, China – Raw Materials, paras. 7.177–7.178. In the latter case, any interested enterprise submits a bidding price and a bidding quantity to China’s Export Quota Bidding Committee, which is established within MOFCOM and determines the quantity of the export quotas along with governing each step of the bidding procedure. China’s Bidding Office determines the winning bidders by ranking all bids received from applicants in descending order (i.e. from the highest bid prices to the lowest) and matching them with the related bidding quantities until the total bidding quantity equals the annual total amount available for each product. See China’s Export Quota Bidding Measures, Article 26, cited in Panel Reports, China – Raw Materials, paras. 7.187–7.199.
- 22.
See, e.g. the requirements established for exporters of bauxite, coke, fluorspar, silicon carbide and zinc, detailed in Panel Reports, China – Raw Materials, paras. 7.177–7.186 and paras. 7.198–7.201. See also the requirements imposed on exporters of rare earth elements, molybdenum and tungsten described in Panel Reports, China – Measures Related to the Exportation of Rare Earths, Tungsten and Molybdenum, WT/DS431/R, WT/DS432/R, WT/DS433/R, adopted 26 March 2014 (hereinafter Panel Reports, China – Rare Earths), paras. 7.204–7.235.
- 23.
Morrison WM and Tang R (2012), China’s rare earths industry and export regime: economic and trade implications for the United States, US Congressional Research Service (CRS) Report for Congress, 30 April 2012, https://fas.org/sgp/crs/row/R42510.pdf (last accessed 15 January 2018).
- 24.
Fliess et al. (2014), p. 13; Trade Policy Review Body, Report by the Secretariat, WT/TPR/S/342, 15 June 2016, p. 73.
- 25.
At first, the Chinese government seemed determined not to bring its regime into compliance with the Appellate Body recommendations. See Espa (2015), p. 328.
- 26.
For a detailed description of the most common end-uses of mineral resources subject to export restrictions by the Chinese government, see Korinek and Kim (2010), pp. 123–130. More detailed profiles covering the main end-use markets of each material were prepared by the European Commission. See European Commission (2014) Report on critical raw materials for the EU: non-critical raw materials profiles, http://www.catalysiscluster.eu/wp/wp-content/uploads/2015/05/2014_Critical-raw-materials-for-the-EU-2014.pdf (last acceded 15 January 2018).
- 27.
Espa (2015), p. 58.
- 28.
See Espa (2015), pp. 56–58.
- 29.
See Espa (2015), pp. 77–80.
- 30.
OECD Inventory on export restrictions on Industrial Raw Materials, https://qdd.oecd.org/subject.aspx?Subject=ExportRestrictions_IndustrialRawMaterials (last acceded 20 January 2018).
- 31.
A striking example in this respect is the evolution of the allocated export quotas imposed on rare earth elements, which went from 59,643 metric tons in 2007 through 49,990 metric tons in 2008 to 30,259 metric tons in 2010. Although the number of total allocations always remained within the range of 30,000–31,000 metric tons until 2014, from 2011 the list of products covered by the quota was updated to include various ferro-alloys that were not covered before. This de facto reduced the 2011 rare earths export quota by as much as 30%. See Espa (2015), pp. 91–92.
- 32.
Espa (2015), pp. 114–115.
- 33.
- 34.
Wu (2017), pp. 673–691.
- 35.
Wu (2017), pp. 686–687.
- 36.
Espa (2015), pp. 114–115.
- 37.
According to standard economic theory, the domestic price decline induced by export restrictions should in turn generate a reduction in domestic production. Fung and Korinek (2014), p. 15. Yet, a substantial body of literature has pointed to contradicting evidence when it comes to assessing the adequateness of export restrictions as environmental tools. For an overview of this literature, see Espa (2015), pp. 119–122.
- 38.
China’s dominance in global mining production was thoroughly assessed. Espa (2015), pp. 58–61.
- 39.
Wu (2017), pp. 678–680.
- 40.
Korinek and Kim (2010), p. 108.
- 41.
- 42.
Fung and Korinek (2014), p. 17.
- 43.
Price and Nance (2010), p. 91.
- 44.
Price and Nance (2010), p. 91.
- 45.
- 46.
Gu (2011), p. 768.
- 47.
European Commission (2010) Annex V to the report of the Ad-hoc Working Group on defining critical raw materials, https://ec.europa.eu/growth/tools-databases/eip-raw-materials/en/community/document/annex-v-report-ad-hoc-working-group-defining-critical-raw-materials (last accessed 22 January 2018).
- 48.
- 49.
Wu (2017), p. 687.
- 50.
Protocol on the Accession of the People’s Republic of China, WT/L/432, 23 November 2001.
- 51.
See paragraphs 155 and 156 of China’s Working Party Report, WT/ACC/CHN/49, 1 October 2001. These paragraphs fall under Section C “Export Regulations” and deal solely with China’s specific obligation to eliminate export duties. Paragraph 155 reads: “taxes and charges should be eliminated unless applied in conformity with GATT Article VIII or listed in Annex 6 to the Draft Protocol.” Paragraph 156 confirms: “China noted that the majority of products were free of export duty, although 84 items, including tungsten ore, ferrosilicon and some aluminium products, were subject to export duties.”
- 52.
Out of 84 listed products, only 4 are fishery products or products of animal origin. See Annex 6 to China’s Protocol of Accession.
- 53.
- 54.
The Appellate Body clarified that the export duties regulated under paragraph 11.3 of China’s Accession Protocol do not fall within the scope of Article VIII GATT. Appellate Body Reports, China – Raw Materials, para. 290.
- 55.
Appellate Body Reports, China – Raw Materials, para. 284.
- 56.
Appellate Body Reports, China – Raw Materials, para. 284.
- 57.
Appellate Body Reports, China – Raw Materials, para. 285. This is because the word “furthermore” in the second sentence of the Note to Annex 6 was interpreted by the Appellate Body to mean that the obligation contained in the second and third sentences of the Note (i.e. the exceptional circumstances requirement and the consultation requirement) are “in addition to China’s obligation under the first sentence not to exceed the maximum tariff levels provided for in Annex 6.” Appellate Body Reports, China – Raw Materials, para. 287.
- 58.
For a thorough analysis of the Appellate Body’s reasoning and its systemic implications, see Espa (2015), pp. 194–208.
- 59.
Appellate Body Reports, China – Rare Earths, para. 5.74.
- 60.
The classical way for members to renegotiate their tariff concessions is the deconsolidation procedure under Article XXVIII GATT. For a more detailed explanation, see Espa (2015), pp. 202–204.
- 61.
Panel Report, Turkey – Restrictions on Imports of Textile and Clothing Products, WT/DS34/R, 19 November 1999, as modified by Appellate Body Report, WT/DS34/AB/R, 22 October 1999, DSR 1999:VI, p. 2363, para. 9.63.
- 62.
At the time of writing, out of the seven cases that have dealt specifically with quantitative restrictions on exports under Article XI:1 GATT, all the measures challenged were considered to fall within the meaning of “prohibitions or restrictions…on the exportation”. For a thorough analysis of Article XI:1 GATT jurisprudence on the export side, see Espa (2015), pp. 169–175.
- 63.
In China – Raw Materials, in particular, the Panel clarified that “the very potential to limit trade constitute[s] a ‘restriction’ within the meaning of Article XI:1 of the GATT 1994.” Panel Reports, China – Raw Materials, para. 7.1081 (original emphasis).
- 64.
A variety of export restrictive measures have been considered to fall within the remit of Article XI:1 GATT in existing WTO case law, from export quotas through non-automatic export licensing schemes to minimum export prices. For a complete overview, see Espa (2015), pp. 169–172.
- 65.
- 66.
Appellate Body Reports, China – Raw Materials, paras. 323–337.
- 67.
As it is known, measures falling under one of the listed exceptions must also meet the test of the chapeau to Article XX GATT, which requires that they not be applied “in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade.”
- 68.
For a broader discussion, see Espa (2015), pp. 209–213.
- 69.
Espa (2015), pp. 111–118.
- 70.
According to the principle of effective interpretation, all applicable provisions of a treaty should be interpreted in a way so as to give effect to all of them without rendering them useless, redundant or irrational. See Van Damme (2009).
- 71.
Once included in GATT schedules, export duty concessions are binding and legally enforceable by virtue of Article II:1(a) and Article II:7, and could be subject to the deconsolidation procedure under Article XXVIII. For a more detailed explanation, see Espa (2015), pp. 131–135.
- 72.
Australia has negotiated export duty concessions on a set of 11 HS 8-digit tariff lines (namely, iron ore, titanium ore, zirconium ore, coal, peat, coke, refined copper, unwrought nickel, nickel oxide, and lead waste and scrap) by means of inserting an ad-hoc mandatory note in Section 2 of Part I of its Schedule on “MFN [most-favoured nation] import tariff commitments on non-agricultural products.” The note states: “There shall be no export duty on this product.” Australia’s Uruguay Schedule, AUS1-201 through AUS1-204.
- 73.
See Espa (2017), pp. 368–370.
- 74.
Tajikistan committed to eliminate all export duties except those admitted by Table 9 of its Working Party Report or applied in conformity with Article VIII GATT, while omitting reference to Article XX GATT or any other general reference to the GATT 1994 or the WTO Agreement. Montenegro committed not to introduce any export duty without negotiating the incorporation of explicit or implicit references to Article XX flexibilities. Other newly acceded Members, such as Latvia, Mongolia and Saudi Arabia, promised to eliminate only the export duties applied on a limited number of products. The other newly acceded Members committed to phase down and bind the export duties applied on a specific list of products (for instance, Vietnam and Kazakhstan). For a thorough analysis, see Espa (2015), pp. 202–204.
- 75.
See OECD Inventory on Export restrictions on Industrial Raw Materials, https://qdd.oecd.org/subject.aspx?Subject=ExportRestrictions_IndustrialRawMaterials (last acceded 20 January 2018).
- 76.
See Espa (2015), pp. 156–159.
- 77.
See Sect. 3.1.
- 78.
Espa (2015), pp. 204–208.
- 79.
The extent to which China’s obligations could be renegotiated seems to depend on whether paragraph 11.3 of its Accession Protocol itself can be amended. China’s accession protocols (as all other accession protocols), however, do not contain any amendment provisions and therefore the matter is still far from settled. Qin (2012), p. 1157.
- 80.
See Espa (2015), pp. 204–206.
- 81.
Panel Reports, China – Rare Earths, paras. 7.62–7.104.
- 82.
Panel Reports, China – Rare Earths, para. 7.115.
- 83.
Appellate Body Reports, China – Rare Earths, para. 5.65.
- 84.
For a more detailed account, see Espa (2015), pp. 208–209.
- 85.
Even so, the potential of “industrial” Article XX exceptions to justify mineral export restraints is considered to be quite limited inasmuch as they target very specific situations of emergencey. Espa (2015), pp. 221–223.
- 86.
Although such an interpretation and application of Article XX(g) GATT was given by the Appellate Body in the context of two disputes involving China, the same approach is likely to apply with regards to any WTO Member imposing mineral export restraints due to the fact that Article XI:1 is a standard GATT rule generally applicable across-the-board. See Sect. 3.2.
- 87.
For a thorough analysis, see Espa (2015), pp. 180–185.
- 88.
For more details, see, among others, Howse R and Josling T (2012) Agricultural export restrictions and international trade law: a way forward, International Food and Agricultural Trade Policy Council (IPC) Position Paper, http://www.agritrade.org/Publications/documents/Howse_Josling_Export_Restriction_final.pdf (last accessed 25 January 2018), p. 14.
- 89.
Espa (2015), pp. 209–213.
- 90.
Espa (2015), pp. 214–221.
- 91.
China’s strategy has progressively focussed on advocating for an evolutionary interpretation of the conservation exception under Article XX(g) in light of the principle of sustainable development and the principle of sovereignty over natural resources. In particular, it invoked the latter to sustain that China’s “... right to ‘manage the supply’ of exhaustible natural resources is inherent to its sovereignty over exhaustible natural resources, which […] allows resource-endowed Members to ‘freely use and exploit their natural wealth and resources…for their own progress and economic development’.” Panel Reports, China – Rare Earths, para. 7.457. In addition, it argued that the principle of sustainable development, as enshrined in the Preamble of the WTO Agreement, informs the interpretation of the conservation exception as to allow Members to “adopt measures, including export quotas, that foster the sustainable development of their domestic economies consistently with general international law and WTO law.” Panel Reports, China – Rare Earths, para. 7.457.
- 92.
Panel Reports, China – Rare Earths, para. 7.459.
- 93.
Panel Reports, China – Rare Earths, para. 7.460. The Panel reiterated that “measures adopted for the purpose of economic development … are not ‘measures relating to conservation’ but measures relating to industrial policy.”
- 94.
Panel Reports, China – Rare Earths, paras. 7.451–7.452 and 7.459–7.460.
- 95.
Panel Reports, China – Rare Earths, para. 7.462. As noted by the panel in China – Raw Materials, “a State’s sovereignty is also expressed in its decision to ratify an international treaty and accept the benefits and obligations that such ratification entails. In becoming a WTO Member, China has of course not forfeited permanent sovereignty over its natural resources, which it enjoys as a natural corollary of its statehood. Nor … has China or any other WTO Member ‘given up’ its right to adopt export quotas or any other measure in pursuit of conservation. China has, however, agreed to exercise its rights in conformity with WTO rules, and to respect WTO provisions when developing and implementing policies to conserve exhaustible natural resources.” Panel Reports, China – Rare Earths, para. 7.270.
- 96.
Panel Reports, China – Rare Earths, paras. 7.419–7.488.
- 97.
Panel Reports, China – Rare Earths, para. 7.611.
- 98.
Panel Reports, China – Rare Earths, para. 7.550.
- 99.
Appellate Body Reports, China – Rare Earths, para. 5.162.
- 100.
Panel Reports, China – Raw Materials, para. 7.434; Panel Reports, China – Rare Earths, para. 7.541.
- 101.
- 102.
- 103.
See Sect. 4.2.
- 104.
Wu (2017), pp. 673–675.
- 105.
Webster (2014), pp. 525–578.
- 106.
Wu (2017), pp. 683–688.
- 107.
Commodity exporting countries have consistently resisted any attempts at reinforcing international trade disciplines on export restrictions since the GATT era. See, e.g., Qin (2012), pp. 1180–1186.
- 108.
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Espa, I. (2018). Chinese Natural Resources Disputes: A Never-Ending Story?. In: Bungenberg, M., Krajewski, M., Tams, C.J., Terhechte, J.P., Ziegler, A.R. (eds) European Yearbook of International Economic Law 2018. European Yearbook of International Economic Law, vol 9. Springer, Cham. https://doi.org/10.1007/8165_2018_2
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